Notice 2009-82

Guidance on 2009 Required Minimum
Distributions

I. PURPOSE

This notice provides guidance relating to the waiver of 2009
required minimum distributions, described in § 401(a)(9)
of the Internal Revenue Code (“Code”), from certain plans
under the Worker, Retiree, and Employer Recovery Act of 2008 (“WRERA”),
P.L. 110-458. In particular, the notice:

provides transition relief through November 30, 2009 for a plan
that is not operated in accordance with its terms with respect to
waived required minimum distributions and certain related payments;

sets out rollover relief with respect to waived required minimum
distributions and certain related payments, including an extension
of the 60-day rollover period to November 30, 2009 for certain of
the distributions; and

answers questions that have been raised regarding the waiver
of 2009 required minimum distributions under WRERA.

In the Appendix, the notice also provides two sample plan amendments
that give recipients a choice as to whether to receive waived required
minimum distributions and certain related payments and that specify
the application of the direct rollover rules to the distributions.
The sample amendments can be used by plan sponsors that are uncertain
as to the treatment under plan terms of waived required minimum distributions
and certain related payments or that otherwise desire to give recipients
a choice as to whether to receive such distributions.

II. BACKGROUND

Section 401(a)(9) provides required minimum distribution (“RMD”)
rules for stock bonus, pension, and profit-sharing plans described
in § 401(a) and for annuity contracts described in § 403(a).
Individual Retirement Accounts and Individual Retirement Annuities
(“IRAs”) described in § 408(a) and § 408(b),
§ 403(b) plans, and eligible deferred compensation plans
under § 457(b) also are subject to the rules of § 401(a)(9)
pursuant to §§ 408(a)(6) and (b)(3), 403(b)(10), and
457(d)(2), respectively, and the regulations under those sections.

Section 402(c) generally provides that the payment of any portion
of an employee’s interest in a qualified trust to the employee
or the employee’s surviving spouse in an eligible rollover distribution
is not includible in gross income if the distribution is rolled over
to an eligible retirement plan no later than the 60th day following
the day of receipt. An eligible rollover distribution is defined
in § 402(c)(4) as a distribution to an employee of all or
any portion of the balance to the credit of the employee in a qualified
trust other than a distribution that is one of a series of substantially
equal periodic payments made over a specified period, a distribution
required under § 401(a)(9), and a distribution made on account
of the employee’s hardship. Section 402(c)(3)(B) provides that
the Secretary may waive the 60-day rollover deadline under certain
circumstances. Section 402(c)(11) provides for the direct rollover
of a deceased employee’s interest in a qualified trust to an
inherited IRA established for the deceased employee’s nonspouse
designated beneficiary. Rules similar to those described in the preceding
sentences in this paragraph apply to § 403(a) annuity plans,
§ 403(b) plans, and § 457 eligible governmental
plans. (See §§ 403(a)(4)(B), 403(b)(8)(B), and 457(e)(16)(B).)

Section 408(d)(3) generally provides that an amount distributed
from an IRA to the IRA owner, or to the surviving spouse of the IRA
owner, is not included in gross income if the distribution is rolled
over to an eligible retirement plan no later than the 60th day following
the day of receipt. A distribution of an after-tax amount can only
be rolled over to another IRA. Section 408(d)(3)(E) provides that
an RMD cannot be rolled over. Section 408(d)(3)(I) provides that
the Secretary may waive the 60-day rollover deadline under certain
circumstances.

In general, § 72(t) imposes a 10-percent additional
tax on early distributions from a plan described in § 401(a),
§ 403(a), or § 403(b), or from an IRA. However,
pursuant to § 72(t)(2)(A)(iv), certain individuals receiving
substantially equal periodic payments from a plan or an IRA are exempted
from the 10-percent additional tax under § 72(t). Notice
89-25, Q&A-12, 1989-1 C.B. 662, as modified by Rev. Rul. 2002-62,
2002-2 C.B. 710, provides three calculation methods for determining
whether distributions are substantially equal periodic payments under
§ 72(t)(2)(A)(iv). One method, the RMD method, uses rules
similar to those under § 401(a)(9) to determine the amount
of the payments required each year. If a series of substantially
equal periodic payments stops or is otherwise modified (other than
by reason of death or disability) prior to age 591/2 or 5 years, all of the payments made are
subject to a recapture tax under § 72(t)(4).

Section 201(a) of WRERA added § 401(a)(9)(H) to the
Code. Section 401(a)(9)(H)(i) provides that § 401(a)(9)
does not apply to defined contribution plans and IRAs for 2009. Section
401(a)(9)(H)(ii)(I) provides that an individual’s required beginning
date is determined without regard to § 401(a)(9)(H) for
purposes of applying § 401(a)(9) for calendar years after
2009. Section 401(a)(9)(H)(ii)(II) provides that if the 5-year rule
for post-death distributions described in § 401(a)(9)(B)(ii)
applies, the 5-year period is determined without regard to 2009.

Section 201(b) of WRERA amended § 402(c)(4) of the
Code to provide that any amount distributed during 2009 that is an
eligible rollover distribution, but would not have been an eligible
rollover distribution had § 401(a)(9) applied during 2009,
is not treated as an eligible rollover distribution for purposes of
§ 401(a)(31) (relating to direct and automatic rollovers
of eligible rollover distributions), § 402(f) (relating
to notices to recipients of eligible rollover distributions), and
§ 3405(c) (relating to mandatory 20-percent withholding
on eligible rollover distributions).

Section 201(c) of WRERA provides that a plan or contract amendment
relating to the changes made by § 201 can be delayed until
the last day of the first plan year beginning in 2011 (2012 in the
case of a governmental plan), provided the plan or contract operates
as if the amendment were in effect from its effective date.

The Joint Committee on Taxation’s Technical Explanation
of H.R. 7327, which became WRERA, provides that if a distribution
is made from a plan during 2009 that would have been an RMD but for
§ 401(a)(9)(H), “the plan is permitted but not required
to offer the employee a direct rollover of that amount and provide
the employee with a written explanation of the requirement.”
(JCX-85-08, December 11, 2008, at page 27.)

On February 2, 2009, the Service published Notice 2009-9, 2009-5
I.R.B. 419, which provides guidance to financial institutions on reporting
for distributions that would be RMDs if not for § 401(a)(9)(H)
(referred to in this notice as “2009 RMDs”).

The Service has received many comments indicating that plan
sponsors are uncertain of the effect of new § 401(a)(9)(H)
on plan operation due, in part, to plan terms intended to satisfy
§ 401(a)(9). For example, some plans may contain distribution
language that satisfies § 401(a)(9) without referencing
this Code section and thus, arguably, would not be affected by § 401(a)(9)(H);
nevertheless, sponsors of such plans may want to suspend 2009 RMDs.
Also, some sponsors may want to give participants and beneficiaries
the choice whether to continue or stop 2009 RMDs, but are uncertain
if their current plan language permits such a choice. In addition,
questions have been received concerning the permissibility of offering
direct rollovers in the case of certain types of distributions that
include 2009 RMDs (as indicated in the Joint Committee on Taxation’s
Technical Explanation described above), particularly where a payment
consists of a 2009 RMD amount and an additional amount that is an
eligible rollover distribution without regard to § 401(a)(9)(H).
The Service has also received questions on whether distributions
that include 2009 RMDs can be rolled over even if such distributions
would be substantially equal periodic payments without regard to § 401(a)(9)(H).
This notice provides guidance on these and other issues relating
to 2009 RMDs.

III. PLAN AMENDMENTS

To address the concerns of plan sponsors, two alternative sample
plan amendments are provided in the Appendix that individual plan
sponsors and sponsors of pre-approved plans can adopt or use in drafting
individualized plan amendments. Both sample amendments provide participants
and beneficiaries the choice between receiving and not receiving distributions
related to 2009 RMDs, but only if the distributions would otherwise
be equal to the 2009 RMDs or be one or more payments in a series of
substantially equal distributions (that include the 2009 RMDs) made
at least annually and expected to last for the life (or life expectancy)
of the participant, the joint lives (or joint life expectancy) of
the participant and the participant’s designated beneficiary,
or for a period of at least 10 years. All other distributions, including
distributions that consist partly of 2009 RMDs, will be made. For
example, a 75-year-old retiree’s request to have his remaining
plan account balance distributed in 2009 in a lump-sum, or in five
approximately equal annual installments over a period that includes
2009, would not be affected by the sample amendments. The first sample
amendment provides that the plan default that applies in the absence
of a participant’s or beneficiary’s election will be to
pay out distributions that include 2009 RMDs, and the second sample
amendment provides that the plan default that applies in the absence
of a participant’s or beneficiary’s election will be to
not pay out distributions that include 2009 RMDs.

Both sample amendments also provide direct rollover choices
(in addition to ones already provided for in the plan), with the default
in each amendment being that the plan will offer a direct rollover
option only for pre-WRERA eligible rollover distributions (i.e., a direct rollover option will not be offered for
2009 RMDs nor for amounts that can be rolled over solely due to the
transition relief provided in Section IV of this notice). One option
provides for the direct rollover of 2009 RMDs and of other amounts
that may be rolled over pursuant to the transition relief for plans
provided in Section IV of this notice (the latter amounts referred
to as “Extended 2009 RMDs” in the sample amendments).
Another option provides for the direct rollover of the entire amount
of a distribution but only where the distribution consists of part
or all of a 2009 RMD amount and an additional amount that is an eligible
rollover distribution without regard to § 401(a)(9)(H).

Either plan amendment may be chosen by a plan sponsor, regardless
of current plan language. Plan sponsors may have to modify the sample
amendment chosen to conform to their plan’s terms and administrative
procedures.

The amendment must be adopted no later than the last day of
the first plan year beginning on or after January 1, 2011 (January
1, 2012 for governmental plans), and, except as provided in Section
IV of this notice, must reflect the operation of the plan to either
cease or continue distributions that include 2009 RMDs in the absence
of a participant’s or beneficiary’s choice. The timely
adoption of the amendment must be evidenced by a written document
that is signed and dated by the employer (including an adopting employer
of a pre-approved plan).

In either case, the amendment (as modified, if necessary, to
conform to the plan’s terms and administrative procedures) will
not result in the loss of reliance on a favorable opinion, advisory,
or determination letter. Also, the Service will not treat the adoption
of one of the sample plan amendments (as modified, if necessary, to
conform to the plan’s terms and administrative procedures) as
affecting the pre-approved status of a master and prototype (M&P)
or volume submitter plan. That is, such an amendment to an M&P
plan that is adopted by an employer will not cause the plan to fail
to be an M&P plan. Similarly, such an amendment to a volume submitter
plan that is adopted by an employer will not cause the plan to fail
to be a volume submitter plan.

The format of the sample plan amendments generally follows the
design of pre-approved plans, including all M&P plans, that employ
a “basic plan document” and an “adoption agreement.”
Thus, the sample plan amendment includes language designed for inclusion
in a basic plan document and language designed for inclusion in an
adoption agreement to allow the employer to select among options related
to the application of the basic plan document provision. Sponsors
of plans that do not use an adoption agreement should modify the format
of the amendment to incorporate the appropriate adoption agreement
options in the terms of the amendment. In such case, the notes in
the adoption agreement portion of the sample amendment should not
be included in the amendment that will be signed and dated by the
employer.

IV. TRANSITION RELIEF

Plan operation relief. The Service understands
that, due to the enactment of WRERA late in 2008, many plan administrators
were unable to timely modify procedures relating to 2009 RMDs to accommodate
the new rules. Also, prior to the issuance of the guidance in this
notice, plan sponsors were unsure of the options available to them.
A plan will not be treated as failing to satisfy the requirement
that it be operated in accordance with its terms merely because, during
the period beginning on January 1, 2009, and ending on November 30,
2009: (1) distributions that equal the 2009 RMDs or that are one or
more payments in a series of substantially equal distributions (that
include the 2009 RMDs) made at least annually and expected to last
for the life (or life expectancy) of the participant, the joint lives
(or joint life expectancy) of the participant and the participant’s
designated beneficiary, or for a period of at least 10 years were
or were not paid, (2) participants and beneficiaries were not given
the option of receiving or not receiving distributions that include
2009 RMDs, or (3) a direct rollover option was or was not offered
for 2009 RMDs or for other amounts that can be rolled over pursuant
to the rollover relief provided in the following paragraph.

Rollover relief for plans. Payments to
a plan participant in 2009 will not be treated as ineligible for rollover
on account of § 402(c)(4)(A) if the payments equal the 2009
RMDs or are one or more payments in a series of substantially equal
distributions (that include the 2009 RMDs) made at least annually
and expected to last for the life (or life expectancy) of the participant,
the joint lives (or joint life expectancy) of the participant and
the participant’s designated beneficiary, or for a period of
at least 10 years. Accordingly, such payments can be rolled over,
provided the other rules of § 402(c) are satisfied. To
assist plan participants who have already received distributions in
2009 but may have been unsure of which amounts could be rolled over,
the Service, under the authority of § 402(c)(3)(B), is hereby
extending the 60-day rollover period, for any 2009 RMD and for any
additional payments that are part of a series described in the first
sentence of this paragraph, so that it ends no earlier than November
30, 2009.

Rollover relief for IRAs. In the case
of IRA owners who have already received distributions of 2009 RMDs
in 2009, the Service, under the authority of § 408(d)(3)(I),
is hereby extending the 60-day rollover period for any such distribution
so that it ends no earlier than November 30, 2009. However, because
of the one-rollover-per-year rule in § 408(d)(3), which
was unchanged by WRERA, no more than one distribution from an IRA
in 2009 will be eligible for this rollover relief.

V. OTHER ISSUES

Q-1. Do IRAs have to be amended for § 401(a)(9)(H)?

A-1. Pending the issuance of further guidance, IRAs do not
have to be amended for § 401(a)(9)(H).

Q-2. In a plan that permits an employee or beneficiary to elect
whether the 5-year rule in § 401(a)(9)(B)(ii) or the life
expectancy rule in § 401(a)(9)(B)(iii) and (iv) applies,
does § 401(a)(9)(H) extend the time for making the election?

A-2. Yes, when the deadline for making the election, in the
absence of § 401(a)(9)(H), would be in 2009. Section 1.401(a)(9)-3,
A-4(c), of the Income Tax Regulations requires the election to be
made no later than the earlier of the end of the calendar year in
which distribution would be required to commence in order to satisfy
the life expectancy rule in § 401(a)(9)(B)(iii) and (iv)
or the end of the calendar year which contains the fifth anniversary
of the date of death of the employee. Pursuant to § 401(a)(9)(H),
no RMDs are required for 2009, effectively extending the deadline
to the end of 2010 if the deadline, without regard to § 401(a)(9)(H),
would be the end of 2009. Thus, for example, if a 50-year-old participant
in a plan providing the election described in § 1.401(a)(9)-3,
A-4(c), died in 2008 with his sister as his designated beneficiary,
the sister has until the end of 2010 to choose between the 5-year
rule and the life expectancy rule. Similarly, where a participant’s
spouse is the designated beneficiary, the spouse has until the end
of 2010 to make the election if the deadline, in the absence of § 401(a)(9)(H),
would be the end of 2009.

Q-3. In a plan that permits direct rollovers by nonspouse designated
beneficiaries pursuant to § 402(c)(11), does § 401(a)(9)(H)
extend the time for making the direct rollover?

A-3. Yes, if the participant died in 2008. The “special
rule” at A-17(c)(2) in Notice 2007-7, 2007-1 C.B. 395, provides
that if the 5-year rule applies to a benefit under a plan, the nonspouse
designated beneficiary may determine the RMD using the life expectancy
rule in the case of a distribution made prior to the end of the year
following the year of death. The special rule in Notice 2007-7 is
hereby modified so that if the employee’s death occurred in
2008, the nonspouse designated beneficiary has until the end of 2010
to make the direct rollover and use the life expectancy rule.

Q-4. Besides the extensions provided in Q&A-2 and Q&A-3
of this notice and the rollover relief provided in Section IV of this
notice, are any other deadlines extended or rollover requirements
waived?

A-4. No, § 201 of WRERA only provides relief from
certain deadlines and rollover requirements. Thus, for example, the
deadline of September 30 following the year of death, in § 1.401(a)(9)-4,
Q&A-4 (relating to the determination of designated beneficiaries);
the October 31 deadline in § 1.401(a)(9)-4, A-6(b) (relating
to the date by which the trustee of a trust that is a plan’s
designated beneficiary must provide the plan administrator certain
information); and the last-day-of-the-year deadline in § 1.401(a)(9)-8,
A-2(a)(2) (relating to the date by which separate accounts must be
established) are not extended. Similarly, for example, with respect
to rollovers, the one-rollover-per-year rule in § 408(d)(3)
and the restrictions on rollovers by nonspouse beneficiaries and on
rollovers of after-tax amounts were not changed by WRERA and still
apply.

Q-5. For a plan subject to §§ 401(a)(11) and
417, is spousal consent required to suspend distributions that include
2009 RMDs and restart such distributions in 2010?

A-5. A plan subject to §§ 401(a)(11) and 417
can follow the procedures described in Q&A-8 of Notice 97-75,
1997-2 C.B. 337, choosing to have either a new annuity starting date
or no new annuity starting date upon recommencement. If no new annuity
starting date is chosen under those procedures, spousal consent is
not required under most circumstances. If the plan provides that
there is a new annuity starting date, spousal consent may be required
under those procedures to suspend distributions that include 2009
RMDs and to restart such distributions in 2010, depending on the form
of distribution.

Q-6. Can distributions that include 2009 RMDs made from a plan
be rolled over back into the same plan?

A-6. Yes, provided the plan permits such rollovers and the
rollover satisfies the requirements of § 402(c), taking
into account the relief provided in Section IV of this notice.

Q-7. Can a 2009 RMD paid from a plan in 2009 be treated as
an eligible rollover distribution for purposes of withholding under
§ 3405(c) at the 20-percent rate?

A-7. No, a 2009 RMD that is paid from a plan in 2009 is not
treated as an eligible rollover distribution for purposes of § 3405(c).
For example, if a plan makes a distribution in 2009 to a retiree
of his entire account balance under the plan and part of the distribution
is a 2009 RMD, the portion of the distribution that is not a 2009
RMD is subject to the 20-percent mandatory withholding rules under
§ 3405(c) and the portion of the distribution that is a
2009 RMD is subject to the 10-percent optional withholding rules under
§ 3405(b). On the other hand, if the retiree was receiving
monthly distributions from the plan that exceeded his RMDs and that
are expected to last for a period of at least 10 years, then the whole
amount of each distribution is subject to the periodic-payment optional
withholding rules under § 3405(a). The rule in this Q&A-7
only applies to 2009 RMDs paid from a plan in 2009. Withholding for
a 2009 RMD that is paid in 2010 (for example, where the employee turns
701/2 in 2009 and
delays payment until April 1, 2010) is determined without regard to
§ 201(b) of WRERA or this Q&A-7.

Q-8. How does a plan determine which distributions during 2009
are 2009 RMDs?

A-8. The first distributions in 2009 are any RMDs from prior
years not yet distributed, followed by 2009 RMDs.

Q-9. Does § 401(a)(9)(H) apply to payments that are
part of a series of substantially equal periodic payments under the
“RMD method” (a series of payments described in Notice
89-25 and Rev. Rul. 2002-62 that are designed to satisfy the § 72(t)(2)(A)(iv)
exception to the 10-percent additional tax under § 72(t))
so that stopping such payments for 2009 would not be considered a
modification under § 72(t)(4)?

A-9. No, § 401(a)(9)(H) does not apply to such payments;
accordingly, if they are stopped in 2009 (other than because of death
or disability) prior to age 591/2 (or prior to 5 years from the date of the first payment),
all the payments made under the series are subject to a recapture
tax under § 72(t)(4).

VI. EFFECT ON OTHER DOCUMENTS

Notice 2007-7 is modified by Q&A-3 of this notice.

DRAFTING INFORMATION

The principal author of this notice is Roger Kuehnle of the
Employee Plans, Tax Exempt and Government Entities Division. Questions
regarding this notice may be sent via e-mail to retirementplanquestions@irs.gov.

Appendix

Section 401(a)(9)(H) Sample Amendments

Default to continue 2009 RMDs

For use by plan
sponsors that want to give participants and beneficiaries an election
between receiving and not receiving distributions that include 2009
RMDs and where the default that applies in the absence of a participant’s
or beneficiary’s election will be to continue making distributions
that include 2009 RMDs.

Notwithstanding
section of the plan, a participant or beneficiary who would have
been required to receive required minimum distributions for 2009 but
for the enactment of section 401(a)(9)(H) of the Code (“2009
RMDs”), and who would have satisfied that requirement by receiving
distributions that are (1) equal to the 2009 RMDs or (2) one or more
payments in a series of substantially equal distributions (that include
the 2009 RMDs) made at least annually and expected to last for the
life (or life expectancy) of the participant, the joint lives (or
joint life expectancy) of the participant and the participant’s
designated beneficiary, or for a period of at least 10 years (“Extended
2009 RMDs”), will receive those distributions for 2009 unless
the participant or beneficiary chooses not to receive such distributions.
Participants and beneficiaries described in the preceding sentence
will be given the opportunity to elect to stop receiving the distributions
described in the preceding sentence. In addition, notwithstanding
section of the plan, and solely for purposes of applying the direct
rollover provisions of the plan, certain additional distributions
in 2009, as chosen by the employer in the adoption agreement, will
be treated as eligible rollover distributions.

If no election
is made by the employer in the adoption agreement, a direct rollover
will be offered only for distributions that would be eligible rollover
distributions without regard to section 401(a)(9)(H).

(Adoption
agreement provision)

Direct Rollovers:

For purposes of the
direct rollover provisions of the plan, the following will also be
treated as eligible rollover distributions in 2009: (Check one or
none.)

2009 RMDs and Extended
2009 RMDs (both as defined in the plan).

2009 RMDs (as defined
in the plan) but only if paid with an additional amount that is an
eligible rollover distribution without regard to section 401(a)(9)(H).

Name of Employer

By: Signature Date

Name and title

Default to discontinue 2009 RMDs

For use by plan
sponsors that want to give participants and beneficiaries an election
between receiving and not receiving distributions that include 2009
RMDs and where the default that applies in the absence of a participant’s
or beneficiary’s election will be to discontinue making distributions
that include 2009 RMDs.

Notwithstanding
section of the plan, a participant or beneficiary who would have
been required to receive required minimum distributions for 2009 but
for the enactment of section 401(a)(9)(H) of the Code (“2009
RMDs”), and who would have satisfied that requirement by receiving
distributions that are (1) equal to the 2009 RMDs or (2) one or more
payments in a series of substantially equal distributions (that include
the 2009 RMDs) made at least annually and expected to last for the
life (or life expectancy) of the participant, the joint lives (or
joint life expectancy) of the participant and the participant’s
designated beneficiary, or for a period of at least 10 years (“Extended
2009 RMDs”), will not receive those distributions for 2009 unless
the participant or beneficiary chooses to receive such distributions.
Participants and beneficiaries described in the preceding sentence
will be given the opportunity to elect to receive the distributions
described in the preceding sentence. In addition, notwithstanding
section of the plan, and solely for purposes of applying the direct
rollover provisions of the plan, certain additional distributions
in 2009, as chosen by the employer in the adoption agreement, will
be treated as eligible rollover distributions.

If no election
is made by the employer in the adoption agreement, a direct rollover
will be offered only for distributions that would be eligible rollover
distributions without regard to section 401(a)(9)(H).

(Adoption
agreement provision)

Direct Rollovers:

For purposes of the
direct rollover provisions of the plan, the following will also be
treated as eligible rollover distributions in 2009:

(Check one or none.)

2009 RMDs and Extended
2009 RMDs (both as defined in the plan).

2009 RMDs (as defined
in the plan) but only if paid with an additional amount that is an
eligible rollover distribution without regard to section 401(a)(9)(H).

Name of Employer

By: Signature Date

Name and title

[Note to Sponsor: In either amendment, the first blank should contain
the section of the plan dealing with RMDs (and the section of the
plan dealing with other distributions, if applicable) and the second
blank should contain the section of the plan dealing with direct rollovers.]